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Wednesday, August 28, 2013

The Debt Limit: History and Recent Increases

D. Andrew Austin
Analyst in Economic Policy

Mindy R. Levit
Analyst in Public Finance

Total federal debt can increase in two ways. First, debt increases when the government sells debt
to the public to finance budget deficits and acquire the financial resources needed to meet its obligations. This increases debt held by the public. Second, debt increases when the federal government issues debt to certain government accounts, such as the Social Security, Medicare, and Transportation trust funds, in exchange for their reported surpluses. This increases debt held by government accounts. The sum of debt held by the public and debt held by government accounts is the total federal debt. Surpluses reduce debt held by the public, while deficits raise it.

On August 2, 2011, President Obama signed the Budget Control Act of 2011 (BCA; S. 365; P.L. 112-25), after an extended debt limit episode. The federal debt had reached its legal limit on May 16, 2011, prompting Treasury Secretary Timothy Geithner to declare a debt issuance suspension period, allowing certain extraordinary measures to extend Treasurys borrowing capacity. The BCA included provisions aimed at deficit reduction and allowing the debt limit to rise between
$2,100 billion and $2,400 billion in three stages, the latter two subject to congressional disapproval. Once the BCA was enacted, a presidential certification triggered a $400 billion
increase, raising the debt limit to $14,694 billion, and a second $500 billion increase on
September 22, 2011, as a disapproval measure (H.J.Res. 77) only passed the House. A January 12, 2012, presidential certification triggered a third, $1.2 trillion increase on January 28, 2012,
although the House passed a disapproval measure. Federal debt reached its limit on December 31,
2012. Extraordinary measures were estimated to allow payment of government obligations until mid-February or early March 2013. H.R. 325, which suspends the debt limit until May 19, 2013, was passed by the House on January 23, 2013, by the Senate on January 31, and was signed into law (P.L. 113-3) on February 4. As of May 19, the debt limit was set at $16,699 billion. On May 9, 2013, the House passed H.R. 807, which would modify the debt limit to allow financing of interest payments for debt held by the public and the Social Security trust funds.

Congress has always restricted federal debt. The Second Liberty Bond Act of 1917 included an aggregate limit on federal debt as well as limits on specific debt issues. Through the 1920s and 1930s, Congress altered the form of those restrictions to give the U.S. Treasury more flexibility in debt management and to allow modernization of federal financing. In 1939, a general limit was placed on federal debt.

Congress, aside from two measures noted above, has modified the debt limit 10 times since 2001, due to persistent deficits and additions to federal trust funds. Congress raised the limit in June 2002, May 2003, November 2004, March 2006, and September 2007. The 2007-2008 fiscal crisis and subsequent economic slowdown led to sharply higher deficits in recent years, which led to a series of debt limit increases. The Housing and Economic Recovery Act of 2008 (H.R. 3221), signed into law (P.L. 110-289) on July 30, 2008, included a debt limit increase. The Emergency Economic Stabilization Act of 2008 (H.R. 1424), signed into law on October 3 (P.L. 110-343), raised the debt limit again. The debt limit rose a third time in less than a year to $12,104 billion with the passage of the American Recovery and Reinvestment Act of 2009 on February 13, 2009 (ARRA; H.R. 1), which was signed into law on February 17, 2009 (P.L. 111-5). Following that measure, the debt limit was subsequently increased by $290 billion to $12,394 billion (P.L. 111-123) in a stand-alone debt limit bill on December 28, 2009, and by $1.9 trillion to $14,294 billion on February 12, 2010 (P.L. 111-139), as part of a package that also contained the Statutory Pay-
As-You-Go Act of 2010. This report will be updated as events warrant.

Date of Report: August 14, 2013
Number of Pages: 43
Order Number: RL31967
Price: $29.95

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